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Medicare Trustee: Seniors' Health Care Bill Will Double As Baby Boomers Retire
June 12, 2007 — News
Various Restrictions on Health Care Spending Can Reduce Medicare Debt Up to 40%, Says NCPA Study
DALLAS (June 12, 2007) - Medicare's costs are rising so rapidly that substantial tax increases, benefit cuts, or a combination of the two will be necessary.
"As more and more baby boomers reach retirement, the cash-flow deficits will begin to snow ball," said Thomas R. Saving, a Medicare trustee who is a senior fellow with the National Center for Policy Analysis and director of the Private Enterprise Research Center at Texas A&M University. "What is Congress going to do when Medicare's deficit mounts?"
In a new NCPA study, Saving notes that Medicare has an unfunded liability six times the size of Social Security and is on a spending path that is unsustainable. What can be done? Some have suggested either making seniors pay more for their benefits or raising taxes. Yet according to the study, these options would not directly reduce health care spending growth; rather they would only result in a painful reallocation of the program's costs between taxpayers and seniors. For example, in order to fund future deficits:
- If seniors bear the burden: Monthly premiums in constant dollars would have to more than quadruple by 2020, and be almost 30 times their current level by 2080. At that point, the required monthly premium would consume more than the average wager-earner's Social Security check.
- If taxpayers bear the burden: We would need a 10 percent increase in income taxes by 2020 and a 50 percent increase by 2080 - just to pay Medicare's bills.
"Serious reforms should be designed to slow the growth of health care spending," said Saving. "Someone must choose between health care and other uses of money. Someone must decide that the next MRI scan or the next knee replacement, for example, is worth the cost."
Health spending decisions could be made by the government (as it is in other countries), by insurers operating under government rationing rules, or by seniors themselves. The study examined the consequences of both government and seniors making the decisions, and found the impact on the deficit to be roughly equal.
- One option: upon reaching age 65, beneficiaries would enroll in a health plan that is indexed only for inflation, rather than increases in health care costs. Although this option would deny many seniors access to new technology, it would reduce Medicare's unfunded liability up to 40 percent.
- A second option: a $5,000 deductible indexed to inflation coupled with a Health Savings Account (HSA). This reform would encourage seniors to make their own choices between health care and other spending; it would reduce Medicare's unfunded liability by as much as 40 percent.